Macroeconomics Chapter 7 - Unemployment, Inflation, and Deflation

Flashcards covering key vocabulary and concepts related to unemployment, inflation, and business cycles.

Unemployment

Total number of adults (16 years or older) who are actively looking for work but have not found a job

Labor force

People, 16 years or older, who have a job or are looking for work; number of employed plus the number of unemployed

Discouraged workers

People who have stopped looking for a job because they don’t think they will find a suitable one; not included in the labor force or unemployment rate

Frictional unemployment

Unemployment due to searching for an appropriate job (recent graduates looking for work and people changing jobs)

Structural unemployment

Unemployment due to the mismatch between workers’ skills and available jobs (auto workers replaced by robots)

Cyclical unemployment

Unemployment due to an economic downturn or recession/depression

Natural rate of unemployment

The unemployment rate expected at long-run equilibrium; equals frictional + structural unemployment

Full employment

A low level of unemployment compatible with price stability; economy operating at its full potential

Purchasing power

Value of money for buying goods or services

Inflation

An increase in the average level of prices of goods and services; causes a decline in purchasing power of money

Deflation

A decrease in the average level of prices of goods and services

Price index

Cost of a basket of goods expressed as a percentage of the cost of the same basket in a base year; used to measure the average change in prices over time

CPI - Consumer Price Index

Goods and services purchased by consumers

PPI - Producer Price Index

Goods and services purchased by producers; changes in PPI typically precede changes in the CPI

GDP Deflator

All U.S. produced goods and services (GDP – gross domestic product)

PCE Index - Personal Consumption Expenditure Index

Current consumer spending

Nominal rate of interest

Interest rate that is quoted

Real rate of interest

Nominal rate of interest minus inflation

Cost of living adjustments (COLAs)

Wage rates increase as the price level increases

Business fluctuations (or business cycle)

Ups and downs in business activity (output, income, employment)

Expansion

Business fluctuations are positive; economic activity is speeding up

Contraction

Business fluctuations are negative; economic activity is slowing down

Recession

Prolonged or significant economic contraction

Depression

Extremely severe recession